Abstract

We study shock-based methods for credible causal inference in corporate
finance research. We focus on corporate governance research,
survey 13,461 papers published between 2001 and 2011 in 22 major
accounting, economics, finance, law, and management journals; and
identify 863 empirical studies in which corporate governance is associated
with firm value or other characteristics. We classify the methods
used in these studies and assess whether they support a causal link between
corporate governance and firm value or another outcome. Only
a stall minority of studies have convincing causal inference strategies.
The convincing strategies largely rely on external shocks – usually
from legal rules – often called “natural experiments”. We examine the
74 shock-based papers and provide a guide to shock-based research
design, which stresses the common features across different designs
and the value of using combined designs.